Seniors in America are carrying more debt than ever before, and the trend is worsening the ongoing retirement crisis.
How much money are we talking about? A 2019 Congressional Research Service report found that the percentage of elderly households—those led by people aged 65 and older—with any type of debt increased from 38% in 1989 to 61% in 2016. The amount owed jumped from about $7,500 to more than $31,000 (2016 dollars).
People who carry debt into retirement, especially credit card debt, confront more stress and report a lower quality of life than those who do not. Meanwhile, older Americans who own their homes outright—instead of renting or continuing mortgage payments—have a much easier time staying on top of their finances and making ends meet.
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When you break down the statistics by types of debt, you find that senior households have become more likely to have a mortgage, revolving debt and even student loans—while the amount owed on all types of debt has grown in recent years, even after accounting for inflation.
With half of the nation at risk of saving too little for retirement, senior indebtedness is becoming a serious threat to retirement for a growing number of people. Here Forbes Advisor has compiled debt statistics and key research findings from a range of sources to provide an overview of the scope of this key retirement issue.
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- recent study in the journal Aging and Mental Health found that carrying a credit card balance is the strongest predictor of struggling to pay monthly bills and facing financial strain, “stronger than other non-housing consumer debt and mortgage debt.”
Federal Reserve data shows that a growing percentage of seniors have been holding credit card debt over the past 30 years, and their outstanding balances have been getting larger, even when adjusted for inflation.
- The percentage of households led by someone age 65 to 74 who has card debt increased to 41% in 2019 from 27% in 1989, according to the Fed. The median amount owed has jumped from an inflation-adjusted $1,090 to $2,850 over this time period.
- The percentage of households led by someone 75 or older who has credit card debt rose to 28% in 2019 from 10% in 1989. The median amount owed climbed from an inflation-adjusted $400 to $2,700 over the same period.
- Demand for new credit cards among people 60 and older has held relatively steady over the past few years—until it dropped through the floor after Covid-19 struck.
- Despite an increase in credit card debt, seniors have done a good job staying current on their monthly bills, with the serious delinquency rate for those 60 and older holding steady.
Seniors and Mortgage Debt
For people close to retirement or already in retirement, paying off a home mortgage removes a major financial burden. Even just reducing a mortgage balance is associated with a greater ability to keep up with your bills and less financial strain.
Yet the data show more retirees holding more mortgage debt. Over the past 30 years, older Americans have become more likely to have a mortgage and owe a larger amount on their mortgage. While mortgages are not as harmful as credit card debt, they can still strain the finances of people approaching retirement and entering retirement.
“A detailed assessment of mortgage debt finds that greater levels of both first and secondary mortgages are associated with greater bill-paying difficulty and greater ongoing financial strain,” notes the Aging and Mental
Health study cited above. “An increase in new mortgage debt obtained after age 62 is associated with an increase in bill-paying difficulty but is not significantly associated with ongoing financial strain.”
Owning your home outright provides a significant boost to your ability to enjoy retirement. A 2016 research report from Harvard found that older Americans with mortgage debt have less spending money available for anything else.
- The Harvard report found that just 17% of people over 65 who own their home outright are “housing cost burdened,” defined as paying more than 30% of your gross income toward housing costs. Meanwhile, 45% of older homeowners with a mortgage and 55% of renters were housing cost burdened.
- Federal Reserve data show that more seniors have a mortgage or home-equity loan now than 30 years ago. The average amount they owe has grown.
- Seniors are also more likely to have a home equity line of credit (HELOC) than they were 30 years ago.
Student Loan Debt Among Seniors
No demographic group is adding education debt at the rate of today’s seniors. That’s primarily due to older Americans taking out loans to help their kids and grandkids go to college, according to a 2017 Consumer Financial Protection Bureau (CFPB) report.
The CFPB estimates that 57% of all those who co-signed were aged 55 and older. That means that seniors are on the hook for these loans along with the student who needed the loan.
This can lead to some confusion, especially when a co-signer doesn’t know the other borrower stopped making payments. According to the CFPB, senior borrowers commonly said they were misled about their eligibility for income-driven repayment plans, and were often confused about their responsibility when they co-signed on a loan.
- There were 600,000 student loan borrowers over the age of 60 in 2004—by 2015, that number had risen to 2.8 million. Loan balances rose from $6.1 billion to $66.7 billion over the same time period.
- Seniors generally take out student loans in order to help their children or grandchildren attend college. Only a minority of seniors are taking on student loans for their own education.
- Delinquency rates for seniors fell sharply, from 9.8% in the last quarter of 2019 to 5.8% a year later, after the government suspended all federal student payments in April 2020.
Seniors and Auto Loans
A car is a necessity for the vast Americans who have little to no public transportation resources available to them. Over the past three decades, automobiles have become ever more reliable, long lasting and expensive.
The average cost of a new car in 2020 is almost $38,000, according to the Kelley Blue Book, more than the typical senior has in savings. Higher costs, but also much more affordable auto loan rates, have helped push senior automobile indebtedness higher.
In addition, Experian research suggests the growing popularity of 72-month and 84-month terms—traditional auto loans carry 48-month or 60-month terms—is costing borrowers considerably more over the life of their loans, even as they lower monthly payments.
- Over the past 30 years, seniors became more likely to take out an auto loan and tended to borrow more. This led to a huge increase in the total amount taken out by seniors for car purchases in recent years.
- In the third quarter of 2000, people aged 60 to 69 took out $5.6 billion in auto loans. Twenty years later, this same group borrowed $22.5 billion.
- Despite their big debt overhang, seniors are no more likely to be delinquent on their auto loan debt now than in decades past.
Americans Are Preparing for Retirement by Paying Down Debt
Debt makes it much more challenging to save for retirement. According to a survey by AARP and the Ad Council, among those between the ages of 40 and 59:
- 33% said paying off a large debt was their most important goal.
- 21% cited building up their retirement savings.
- 11% wanted to beef up their emergency fund.
A Pew Charitable Trusts survey found something similar: 75% of small business workers who weren’t saving to their retirement plan at work would be motivated to save if they paid down their debt first.
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